Question

Henna Co. produces and sells two products, T and O. It manufactures these products in separate factories and markets them through different channels. They have no shared costs. This year, the company sold 42,000 units of each product. Sales and costs for each product follow.

	Product T					Product O
Sales		$	747,600				$	747,600
Variable costs			523,320					149,520
Contribution margin			224,280					598,080
Fixed costs			108,280					482,080
Income before taxes			116,000					116,000
Income taxes (35% rate)			40,600					40,600
Net income		$	75,400				$	75,400

2. Assume that the company expects sales of each product to decline to 25,000 units next year with no change in unit selling price. Prepare forecasted financial results for next year following the format of the contribution margin income statement as just shown with columns for each of the two products (assume a 35% tax rate). Also, assume that any loss before taxes yields a 35% tax benefit. (Round "per unit" answers to 2 decimal places. Enter losses and tax benefits, if any, as negative values.)

HENNA CO. Forecasted Contribution Margin Income Statement Product T Producto Units $ Per unit Total $ Per unit Total Total Sales Contribution margin Net income (loss)

3. Assume that the company expects sales of each product to increase to 56,000 units next year with no change in unit selling price. Prepare forecasted financial results for next year following the format of the contribution margin income statement shown with columns for each of the two products (assume a 35% tax rate). (Round "per unit" answers to 2 decimal places.)

Answer 1

HENNA CO.
Forecasted Contribution margin Income statement
			Product T		Product O		Total
		Units	$ per unit	Total	$ per unit	Total
	Sales	25000	$17.80	$4,45,000	$17.80	$4,45,000	$8,90,000
Less:	Variable cost	25000	$12.46	$3,11,500	$3.56	$89,000	$4,00,500
	Contribution margin	25000	$5.34	$1,33,500	$14.24	$3,56,000	$4,89,500
Less:	Fixed Cost			$1,08,280		$4,97,520	$6,05,800
	Net Income before tax/(Loss)			$25,220		-$1,41,520	-$1,16,300
Less:	Income tax/(tax benefit) @ 35%			$8,827		$49,532	$40,705
	Net Income/(Loss)			$16,393		-$91,988	-$75,595
HENNA CO.
Forecasted Contribution margin Income statement
			Product T		Product O		Total
		Units	$ per unit	Total	$ per unit	Total
	Sales	56000	$17.80	$9,96,800	$17.80	$9,96,800	$19,93,600
Less:	Variable cost	56000	$12.46	$6,97,760	$3.56	$1,99,360	$8,97,120
	Contribution margin	56000	$5.34	$2,99,040	$14.24	$7,97,440	$10,96,480
Less:	Fixed Cost			$1,08,280		$4,97,520	$6,05,800
	Net Income before tax/(Loss)			$1,90,760		$2,99,920	$4,90,680
Less:	Income tax/(tax benefit) @ 35%			$66,766		$1,04,972	$1,71,738
	Net Income/(Loss)			$1,23,994		$4,04,892	$5,28,886